Arbitrage occurs when there is a mismatch between the buying and the selling price of an asset. The difference in price is considered a risk, because it can change at any given time. For example, if you’re long GBP/JPY (JPY – Japanese yen) and the price goes down, you make a profit (the difference in price between the two markets is a net loss, considering commissions and taxes).
However, if the GBP/JPY price goes up, you’re going to lose money (because you bought the pair at a lower price). This situation is similar to short-selling, where you profit when there’s a difference in price between two marketplaces. The main difference between short-selling and arbitrage is that with short-selling, you have to borrow money to participate and you face the risk of going against the market in your short-selling activity. With arbitration, there’s no need to borrow money (aside from the cost of funding your account on a trading platform).
The beauty of arbitrage is that it allows for continuous exposure to risk – and profit – while following the prices of popular marketplaces. Knowing when to look for these price differences and taking advantage of them is what defines an expert trader.
The Basics Of Arbitrage
Arbitrage is about taking advantage of mismatches in price between different marketplaces. When these price differences exist, opportunities for arbitrage exist – and these can be useful to experienced traders who know how to take advantage of them. Here are the basics of arbitrage as a betting strategy:
Look For Differences In Price
One of the best places to look for arbitrage opportunities is between two popular markets that are close in value. For example, take the case of GBP/JPY (JPY – Japanese yen). This is a popular pairing among speculators due to its relatively stable value and lack of significant direction. It can go either way as the pound fluctuates against the Japanese yen. The GBP/JPY price can be affected by a variety of factors, including the demand and supply for GBP, the political climate between the UK and Japan, and the demand for Japanese products and tourism in the UK. All of these factors make for a fairly stable price for GBP/JPY, which is beneficial for speculators who want to participate in short-term arbitrage.
Dont Forget About Commissions, Taxes, And Fees
Many brokers, including some of the biggest and most popular ones, are wagering-friendly – which means they’ll give you smaller commissions, less fees, and lower rates than traditional brokers. The advantage of considering these platforms is that they make it easy to stay in touch with the market and continue making profits even when the price of one or more of your traded assets goes against you. Be careful though, because some brokers’ strategies are more geared toward attracting new clients than generating solid returns for current ones (the advantage of a high-quality, experienced broker).
The Art Of Arbitrage In Betting
While the basic idea behind arbitrage as a betting strategy is straightforward, applying it successfully requires a bit of knowledge and experience. If you’re looking for a way to make consistent profits in the short-term in a risk-managed way, consider arbitrage as a possible strategy, but also one that’s very complex and can require extensive training to implement successfully.
As a newbie trader, it’s very likely that you’ll lose money implementing an arbitrage strategy for the first time. But with experience, you’ll learn to spot the few opportunities that exist for arbitrage – and how to take advantage of them.